The Diploma's Vanishing Value

Bachelor's degrees may not be worth it, but community college can bring a strong return

By

Jeffrey J. Selingo

April 26, 2013 7:42 p.m. ET

May 1 is fast approaching, and with it the deadline for high-school seniors to commit to a college. At kitchen tables across the country, anxious students and their parents are asking: Does it really matter where I go to school?

ENLARGE

Several websites allow easy comparisons of the return on college tuition.
Ellen Weinstein

When it comes to lifetime earnings, we've been told, a bachelor's degree pays off six times more than a high-school diploma. The credential is all that matters, not where it's from—a view now widely accepted. That's one reason why college enrollment jumped by a third last decade and why for-profit schools that make getting a diploma ultraconvenient now enroll 1 in 10 college students. But is it true that all colleges sprinkle their graduates with the same magic dust?

With unemployment among college graduates at historic highs and outstanding student-loan debt at $1 trillion, the question families should be asking is whether it's worth borrowing tens of thousands of dollars for a degree from Podunk U. if it's just a ticket to a barista's job at Starbucks. When it comes to calculating the return on your investment, where you go to school does matter to your bank account later in life.

Not surprisingly, research has found that a degree from a name-brand elite college, whether it's Harvard, Stanford or Amherst, carries a premium for earnings. But the 50 wealthiest and most selective colleges and universities in the U.S. enroll less than 4% of students. For everyone else, the statistics show that choosing just any college, at any cost for a credential, may no longer be worth it.

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In a few states, including Arkansas, Colorado, Tennessee, Texas and Virginia, families can now compare colleges, and even majors, based on the actual first-year earnings of graduates of in-state schools. (Go to http://collegemeasures.org/esm/.) The salaries come from the states' unemployment-insurance programs, which collect earnings information from employers every quarter. Using Social Security numbers, the states then match the information to college graduates. (One limit of this method: The data don't include graduates who leave the state or are self-employed.)

Think a community-college degree is worth less than a credential from a four-year college? In Tennessee, the average first-year salaries of graduates with a two-year degree are $1,000 higher than those with a bachelor's degree. Technical degree holders from the state's community colleges often earn more their first year out than those who studied the same field at a four-year university.

Take graduates in health professions from Dyersburg State Community College. They not only finish two years earlier than their counterparts at the University of Tennessee at Knoxville, but they also earn $5,300 more, on average, in their first year after graduation.

In Virginia, graduates with technical degrees from community colleges make $20,000 more in the first year after college than do graduates in several fields who get bachelor's degrees. Yet high-school seniors are regularly told that community colleges are for students who can't hack it on a four-year campus.

That's how
Tom Carey
landed at Radford University in Virginia as a business major, though his real love was working on cars. "There was definitely pressure" to go to a four-year school, he told me. "I had no interest in whatever degree I was getting at Radford."

After two years, Mr. Carey, who is from Reston, transferred to be closer to home and enrolled in the automotive-technology program at Northern Virginia Community College. He is now working at a Cadillac dealership and outearns business graduates from Radford's undergraduate program by several thousand dollars. That small difference grows considerably when you take into account that a community-college degree is a fraction of the cost of a bachelor's degree and that these students enter the workforce two years earlier.

Even if Mr. Carey had stayed at Radford, graduates of the undergraduate business administration program there make an average $10,000 less their first year after graduation than those from George Mason University, though both schools charge about the same in tuition.

Given these differences in postgraduate earnings, the size of your student loan is not the only number you should worry about when weighing the college decision. Will you make enough to pay off your loan? What are your chances of graduating on time?

In recent months, two tools have been released that allow families to better compare colleges with respect to return on investment. The U.S. Education Department's College Scorecard website helps you figure out where to get "the most bang for your educational buck" by compiling federal data collected from colleges. Collegerealitycheck.com from the Chronicle of Higher Education allows for quick and easy comparisons between colleges on measures families should weigh during their search. It includes early-career salaries for college graduates from payscale.com, which are self-reported by users of the site.

Colleges don't like being measured by the earnings of their graduates. Defining value in such a narrow way, they argue, obscures the broader benefits of higher education. They point out that first-year salaries often have no bearing on earnings later in life. It's true that those with bachelor's degrees typically earn more over a lifetime than those with a two-year degree, but that's little consolation to those who are discouraged from going to community colleges and end up dropping out of a four-year school without a degree.

The salary and graduation data from the states come from state governments and were analyzed by College Measures, a partnership between the American Institutes of Research (a research organization) and Matrix Knowledge (a consulting firm). As the researchers themselves admit, the data would be more useful if they included more than the first-year salaries of those graduates who remain in state to work. But improving these tools has been slow going, largely because the higher-education lobby has fought federal efforts to create a "unit-record" system that could work across state lines to link students' educational and employment histories.

For decades, U.S. colleges have promoted the economic benefits of higher education. But now that they can no longer ride the coattails of the national averages—which obscure the value of individual schools and make everyone look good—higher-education leaders suddenly think salary is too narrow a measure.

Students who pick their major based solely on postgraduation salaries, as opposed to passion for a field, will in all likelihood struggle in both school and career. But without salary information, many more students will make bad choices. They will go deep into debt without ever knowing that they pursued a degree without a chance at a career or a job to pay off their loans.

—Mr. Selingo's "College (Un)Bound: The Future of Higher Education and What It Means for Students" will be published May 7 by New Harvest.

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